Double Trouble

Client Talking Points

What's Left For Us?

The political class of America loves to take, take take. Between widespread commodity inflation, a devalued currency and unsustainable debt limits, we really have it made here, don’t we? The Republicans and the Democrats are fighting each other over every little detail of a resolution to the fiscal cliff, so the odds of a deal actually happening are very slim. Think about it: how many politicians do you really trust? Do you think they’re looking out for you in the long run or themselves? 

Mining Away

Mining stocks took a hit yesterday with Freeport-Macmoran (FCX) getting a baseball bat to the head like no other. And this morning, gold is down significantly in addition to gold mining stocks. Our intermediate-term TREND line of $1711 is broken for gold. Hedge funds are shedding their holdings related to gold miners and the commodity. Ignore brash comments from people saying that the “super cycle isn’t ending” in commodities. It has already ended and we can go a lot lower here on out.

Asset Allocation

CASH 52% US EQUITIES 12%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
YUM

New unit openings in China and strength in YRI and US should offset China weakness in 1H13. China SRS growth is sensitive to the economy but new unit growth and ROIIC are likely to be supported by continuing growth of the consuming class in China. Looking at operating income by geography for YUM/MCD/SBUX, we can see that YUM is the most geographically diverse. This is manifest in YUM’s more stable EPS growth and price performance over the last 10 years.

SBUX

Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.

ASCA

We believe ASCA is greatly undervalued due to its potential to follow a OPCO/PROPCO model like PENN in two years or so. A high FCF yield and a healthy balance sheet make this gamer an attractive investment.

Three for the Road

TWEET OF THE DAY

“Diamondback liquidation confirmed. Investors pull $520MM. Fund to close down” -@Zerohedge

QUOTE OF THE DAY

“It is a waste of energy to be angry with a man who behaves badly, just as it is to be angry with a car that won't go.” -Bertrand Russell

STAT OF THE DAY

Standard Chartered to pay $330 million in fines to US regulators for dealings with Iran.